3 Reasons Why Agency-Client Relationships Fail

A cutting-edge website. A TV spot. 100,000 Facebook fans. A world class mobile app. For cheap. By tomorrow.

This is what the client wants.

On the other hand, you, the agency, want the time to be able to experiment with new technologies. You want an engagement that you can turn into a case study. You want the client to become your next reference. You want to be considered a trusted partner with one-of-a-kind expertise, and you want to be compensated for the value you bring to the table.

Instead, you come to find out the client neglected to call your team to fill them in on next’s month’s promotion because they knew the time it would take to get you involved would be subtracted from their monthly allotment of billable hours, and they’d prefer your agency spend that time doing “real work.” Yet, had you known, you could have incorporated promotional messaging into the client’s social media content plan and you could have adjusted the focus of your monthly reports to better measure immediate needs.

Neither party can win in an all-too-common situation like this one. There’s a major disconnect and lack of trust, resulting in a commoditized and transactional client-agency exchange. Clients don’t get the results they had hoped for, and agencies don’t get the sense of pride and purpose that comes with being a relied-upon expert who actually impacts the client’s bottom line.

In a world where 71% of marketers want their agencies to be more accountable to results and 72% think agencies are “inconsistent and need to improve,” there’s really no way for agencies to be satisfied either — at least not for the long term.

If brands and agencies want to prosper in the future, agencies need to find a better way to create value.

Why Client-Agency Relationships Go Awry

If you ask agencies why a client engagement failed, they most likely will point fingers at the client. If you ask the client, they’ll most likely point fingers at the agency.

However, clients and agencies alike can be at fault. Both can be difficult to deal with, can fail to live up to expectations, and can miscommunicate or not communicate at all.

But perhaps one major reason why clients and agencies so frequently butt heads is the result of something deeper than a lack of communication, the agency’s inadequate capabilities, the client’s unrealistic expectations, or some other detrimental attribute.

These problems are all just symptoms of a much bigger problem: it’s the broken agency business model that leads to most client-agency breakups.

Here’s why.

Reason #1: Agencies Charge for Time, not Value.

The typical agency business models operates on a billable hours or percent-of-media-purchased fees. Billing clients by the hour allows agencies to get away with charging a flat fee for unequal outputs, causing clients to scrutinize invoices due to nonexistent, mediocre, or arbitrarily measured results. When it comes times for the client to pay, it’s no surprise when they do so grudgingly, and retract from the relationship to avoid creating any additional opportunities to have to rely on the agency’s resources.

The problem with percent-of-media-purchased fees is their hypervariability. Budgets and priorities inevitably change; recessions occasionally happen. When advertising budgets decrease, agency revenue decreases. When advertising stops altogether; the agency revenue comes to a screeching halt. It’s not easy to grow a business when many of your revenue streams are at the mercy of circumstances you can’t control.

Paul Roetzer, Founder of PR 20/20 and author of The Marketing Agency Blueprint, argues that agencies nimble enough to change their business model have the opportunity to emerge as market leaders:

“Pricing strategy is a key component to disruption. Agencies motivated to change will shift away from the inefficient legacy system of billable hours, and move to more results- driven, value-based models accessible to the mass market. This presents the opportunity for agencies and independent consultants to disrupt the industry with lower prices, and potentially higher profit margins.”

The price clients play should be equal to the value they receive; not how long it took to complete the job, nor should they pay the same rate for unequal services rendered, nor should they pay for an agency’s inefficiencies. Likewise, agencies shouldn’t leave money on the table when they’re in a position to charge more.

In 1971, Carolyn Davidson designed the Nike “swoosh” logo for a grand total of $35, and she estimates it took her about 18 hours to complete. What could she have been paid if she was compensated for value instead of a meager $2/hour?

Reason #2: Agencies Don’t Offer the Right Services. If They Do, They Don’t Package Them Properly.

Today’s always on, real-time world calls for always on, real-time marketing. Marketing and advertising used to be oriented around campaigns, sales and promotions, but the age of the internet and social media have created a necessity for brands to become conversational, findable, and interesting around the clock.

Marketing nowadays has to be integrated and holistic. When we say “holistic,” we mean there’s more to marketing than top-funnel awareness building through display ads, blogging and social media publishing. Every facet of paid, owned and earned media have to work in tandem to collectively to bring the client closer to its business goals.

A modern day agency practices inbound marketing: a methodology that involves delivering content to prospective customers when and where they want to be reached. This means content has to contain context; it must be targeted based on behavioral data as well as the prospect’s current stage in the buying cycle. This only occurs when agencies don’t package or sell their marketing services like the countless dishes on the dim sum menu.

Producing more meaningful outcomes requires implementing whichever cross-channel approach will reach consumers and garner results. This is much easier when, for example, SEO can be bundled with complementary services like social media management, content development and reporting.

Gone are the days where the one-time campaign dominates the ad budget. To be relevant today and in the future, brands must create a steady pulse of digital content and social interaction. These brands need agencies to meet their needs with marketing services that are packaged and priced for months or years at a time.

Reason #3: Agencies Aren’t Accountable Enough to Results.

Marketing agencies are still too focused on the glory of the big idea, not the glory of results -- and this is despite a growing demand for bottom- line results that stems from executive pressure.

In 2011, Fournaise Marketing Group in London surveyed 600 CEOs and decision makers to find that:

72% of CEOs think marketers “are always asking for more money, but can rarely explain how much incremental business this money will generate.”

70% think marketers “bombard their stakeholders with marketing data that hardly relate to or mean anything for the company’s P&L.”

67% think that, “unlike CFOs and Sales Forces, [marketers] don’t think enough like business people: they focus too much on the creative, ‘arty’ and ‘fluffy’ side of marketing and not enough on its business science, and rely too much on their ad agencies to come up with the next big idea.”

Agencies of the future need to be laser-focused on driving business results if they not only want to get hired, but want to stick around for awhile.